Page 86 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.71, # 1, 2014, pp. 80-98

Growth of local currency exchange rate leads to further problems of lagging sector. The

manufacturing products are typically high value-added, that’s why increase in local currency

exchange rate makes them more expensive on export markets, local producers lose their price

comparative advantage. At the same time, imported manufacturing goods are becoming cheaper

on local market, so lagging sector manufacturers are losing local customers as well.

Service sector doesn’t suffer from the currency exchange rate because of the reasons

mentioned before – import of services is much more problematic in a short run.

Fig.4. Enforcement of local currency. Export problems of the lagging sector. Further shrinkage

of lagging sector takes place.

Source: Korobeinikov 2014
As a perfect result of the Dutch Disease for the country it is expected to see the decline of

any high value-added manufacturing and high-tech products industries. And the quick restoration

of the manufacturing after elimination of Dutch Disease causes is extremely difficult (Panza,

2014: 149-169) due to complicated nature of manufacturing. Country’s budget becomes highly

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